Wednesday, June 3, 2015

Economic woes of Finland

“Finland has indeed seen a rapid rise in ULC (unit labour costs), but not because of a wage explosion; it’s all about collapsing manufacturing productivity”, wrote Paul Krugman recently, without providing any data in support for his claim.
Eurostat compiles a labour cost index; 2008 = 100 which shows the development of an hourly labour cost. By the 4th quarter 2014, the index rose in the Eurozone to 112.1, in Germany to 115.1, but in Finland to 117.6!
So, after the international debt crisis Finland continued to internally revalue in respect of Germany and the Eurozone indeed at the same pace as before the crisis. From 2000 to 2007 Finland revalued internally six per cent in respect of the Eurozone while Germany internally devalued by seven per cent.
A wage explosion is behind the loss of competitiveness of Finland. It has nothing to do with Euro.
Finland has continuously suffered of the same disease during the post second world war era and devalued her currency markka by one third once per decade, more often at the end of the 1940’s.

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